FDI slows to eight-month low

The net foreign direct investment (FDI) in different sectors of Pakistan’s economy like energy, telecom and banking sectors slowed down to an eight-month low at $89.9 million in July - the first month of current fiscal year 2021-22, according to the central bank.

“The drop in the net inflows on account of FDI was witnessed as local projects being run on the foreign investment made higher outward payments to their headquarters during the month,” Pak-Kuwait Investment Company (PKIC) Head of Research Samiullah Tariq said.

Moreover, inflows from the second largest global economy, China, dulled during the month due to a temporary lull in the second phase of the China-Pakistan Economic Corridor (CPEC) and Belt and Road Initiative. The gross inflows of FDI amounted to $176.3 million in July 2021 which was partially higher compared to $168.7 million recorded in the same month last year. However, the gross outflows more than doubled to $86.4 million in the month under review compared to $40 million in the corresponding month last year. Accordingly, the net inflows dropped to eight-month low at $89.9 million, according to the State Bank of Pakistan’s (SBP) data.

“The multinational companies (MNCs) operating in Pakistan have apparently repaid debt owed to their respective headquarters to settle the inter-company loan and/or dispatched excess funds to head offices so that they could use them under their investment strategy,” Tariq said.

Speaking to The Express Tribune, he said such dispatches mainly went to China, Netherlands and Italy from diverse sectors of Pakistan including textiles, transport, chemicals, storages, communications and financial businesses.

He found nothing wrong with local projects bring run on the foreign investment in Pakistan. He said that almost all foreign projects were progressing well such as power projects under Thar Coal and investment in 3G/4G and 5G in the communications sector.

Moreover, he added that infrastructure development and branchless banking in financial sector, investment in local mobile manufacturing and exports, manufacturing of electric cars and charging infrastructure and oil and gas exploration activities were progressing at rapid pace. “Going forward, China is expected to ramp up investment in Pakistan’s Special Economic Zones (SEZs) and agricultural economy under the second phase of CPEC soon,” he said. “The flow of investment from China has temporarily slowed down following completion of most of the power projects in Pakistan under phase-I of CPEC.”

Most telecom companies have already conducted successful trials of 5G internet. “The MNCs are expected to attract new investment to deploy 5G technology and infrastructure in the country.”

He said that incentives and the package announced for IT and telecom sector by the government with an aim to increase exports should also attract new foreign investment in the respective sectors.

Country-wise FDI

Singapore emerged as the single largest investor in Pakistan in July. It invested net $16.4 million in the month compared to net $2.3 million in the same month last year, according to SBP. United States appeared as the second largest investor with net $14.9 million in the month under review compared to net $11.5 million in the corresponding month last year.

Hone Kong invested net $12.3 million in the month compared to $4.7 million in the same month last year. China, which was the leading investor with a net investment of $44.1 million in July 2020, poured $6.6 million in July 2021 after a significant outflow of $15.2 million in the month.

Sector-wise investment

The power sector attracted single largest investment of net $41.9 million in July 2021 compared to $40.5 million in the same month last year. Financial business received $27 million compared to $22.3 million. Oil and gas exploration sector got $22.4 million in July compared to $16 million in the same month last year.

Published in The Express Tribune, August 18^th, 2021.

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